As the lodging industry struggles to emerge from one of the nation’s deepest economic downturns in decades, San Diego’s hotels may well be the bellwether for what lies ahead for most of the country, believes top Starwood Hotels and Resorts executive Frits van Paasschen.

In town for the recent 100th anniversary of the US Grant Hotel, which is a Starwood-managed property, van Paasschen hastened to point out that hotels already are seeing occupancies approach pre-recession levels, although many have had to discount to fill vacant rooms.

“San Diego is seeing occupancies that mirror the rest of North America, although not at the high levels we’re seeing in gateway cities like New York or Chicago,” said van Paasschen, who joined Starwood as CEO in 2007. There are 10 Starwood-branded hotels in the county, only one of which is owned by the company.

San Diego County's occupancy rate through August of this year was 69.5 percent, an increase of nearly 6 percent over the same time period a year earlier, according to Smith Travel Research. For the United States as a whole, the occupancy level was lower, at 58.8 percent, but the nation's growth in that area was similar to San Diego's, increasing by 5 percent over the prior year.

“Highest end hotels are doing the best," added van Paasschen. "The U.S. Grant and the W are examples of these kind of hotels that are coming back most strongly. When there’s a recovery, people want to go back to the brands they enjoy.”

The W Hotel in downtown San Diego is managed by Starwood Hotels.— John R. McCutchen

The W Hotel in downtown San Diego is managed by Starwood Hotels.
— John R. McCutchen

Downtown San Diego’s tony W hotel, managed by Starwood, is also an example of the plummeting value of properties purchased or refinanced before the recession, which in some cases has forced owners to default on their loans.

The W’s former owner, San Clemente-based Sunstone Hotel Investors Inc., had purchased the W for $96 million four years ago, but decided to walk away from the property after concluding it was no longer worth the $65 million owed on the loan. In June it was foreclosed on and is now owned by Bank of America.

“Between 2005 and 2007, hotels were being bought with 80 percent loan to value. Then along comes the worst recession we’ve had in our lifetimes, and values drop below the loan amounts,” said van Paasschen. “We’re in the business of making money for our owners and uncertainty about our ownership doesn’t help our operators, but in a funny way, it’s been business as usual for us at the W.”

A $6.5 million renovation of the 258-room hotel had been planned for last year, but it was put on hold after Sunstone defaulted on its loan.

“In a time like this, do you get more practical? Yes,” said van Paasschen, sitting in one of the W rooms. “There were times when we’d put off a renovation, but if we felt like the physical structure couldn’t get there from here, we’d part ways. We’ve found that guest satisfaction scores at the W continue to be very strong.”